Jury Verdicts and Forward-Looking Royalties

Technical standards created by standard-setting organizations—such as the 2G, 3G, and 4G wireless communication standards—are ubiquitous in the modern economy and enable the interoperability of products made by different manufacturers. To facilitate the implementation of standards and prevent abusive practices, most standard-setting organizations require [participating] companies that believe their patents are essential to practicing a standard to make binding commitments to license their patents on fair, reasonable, and nondiscriminatory (FRAND) terms. When the holder of a standard-essential patent [first makes a commitment, but later] refuses to honor that commitment, prospective licensees may seek a ruling that the FRAND commitment has been breached and an injunction ordering specific performance (i.e., forming a new license with FRAND terms and conditions).

In the decision on review, the Federal Circuit held that the patent owner accused of breaching its FRAND commitment had a Seventh Amendment right to have a jury set the royalty rate in the injunction requiring it to license its worldwide portfolio of patents on FRAND terms, simply because the injunction included a backward-looking royalty payment proposed by the patent owner as part of the consideration that the licensee was required to pay to receive specific performance.

The question presented is:

Whether a patent owner required to license its standard-essential patents on fair, reasonable, and nondiscriminatory terms has a Seventh Amendment right to a jury trial in a proceeding seeking the equitable relief of specific performance.

6 thoughts on “Jury Verdicts and Forward-Looking Royalties”

Specific performance was, at common law, an equitable remedy that was not generally subject to a Seventh Amendment right of jury trial. Specific performance is often regarded as a fancy label for an injunction compelling a party to comply with the terms of its contract.

But this seems like yet another misguided petition that will end up certiorari denied, like almost all of the others. Centuries of Seventh Amendment jurisprudence establish that the label of a claim (such as “specific performance”) will not control whether a jury trial right attaches, especially here, when the substance of the claim revolves around a dispute about the proper amount of monetary compensation due to the patent holder. This petition tries to get around that fact with annoying labels, such as calling a money judgment after trial “a royalty imposed by injunction,” but the petitioner’s superficial labels do not change the monetary and legal nature of the claim. And even if the Supreme Court had some interest in addressing the Seventh Amendment question in the next term, the complex facts here make this case a poor vehicle to take up that issue. Cert denied.

The gist of this cert petition seems to be that: (1) This was not a”suit at common law” which the 7th Amendment only applies to, and (2) “The backward-looking royalty arose only as a term of a Worldwide license created through an injunction entered in equity. Its operation in the new license simply carried out the long-standing principle that a party seeking specific performance must pay the consideration owed to the opposing party for that performance. It was not a form of Legal damages, as Ericsson had no entitlement At Law to payment without both establishing the infringement of its patents and providing TCL an opportunity to challenge the validity of those patents.” [emphasis applied]
I think this cert petition may have a somewhat better than the usual poor odds of grant: It raises an issue of more general interest, both legally and commercially. It is not just another attack on a prior Sup. Ct. patent law decision or a fact argument. It attacks a Fed. Cir. decision which was not even within that [unloved?] courts usually-asserted legal-expertise. It is being effectively argued by some known-heavy-hitter attorneys.

The presence of “heavy-hitter” attorneys might just as easily be the result of desperation, trying to manufacture gravitas to what is otherwise an insubstantial appeal. The biggest obstacle to certiorari is that the petitioners had to obfuscate their Seventh Amendment analysis to disguise the fact that the claims were, at bottom, about how much money will change hands between the parties. The Supreme Court rarely grants certiorari on Seventh Amendment “judge vs jury” issues. Here, they’d really need to get a groundswell of amicus support arguing that having juries decide these issues is somehow disruptive to standard-essential licensing. But without some empirical evidence on that point (and I don’t know if any exists), it’s not clear why Supreme Court will think having this issue decided by a jury instead of the court is a big deal.

Thanks LR, and your point is particularly well taken that the Petitioner might “need to get a groundswell of amicus support arguing that having juries decide these [FRAND license fee] issues is somehow disruptive to standard-essential licensing” in order to get cert granted. [Perhaps your suggestion here will inspire that?]

First, since when is specific performance of a “contract” relief ONLY in equity. IMHO, the first issue is a “law” issue – a contract issue for a jury. Then, you can pray in equity for further relief.

Second, a compulsory? counter claim for infringement and past damages is well establish law as being an issue under the 7th Amendment – for the jury – money damages at law. That goes all the way back to Justice Story and before the merger of law and equity courts.

Third, if ever there was a group of that can black letter law and make a hash of it, it’s the current SCOTUS.